OpenAI is restructuring to no longer be led by a non-profit board, and will become a for-profit company, as exclusively reported by
Reuters. The
ChatGPT creator will own a minority stake in the for-profit and CEO
Sam Altman will receive equity in OpenAI, predicted to be worth $150 billion and removing the cap on returns for investors. This news comes hot on the heels of the announcement that CTO
Mira Murati has left the company, while president
Greg Brockman remains on leave, with more leadership changes having come before.
Without non-profit control, OpenAI will function like any other startup, avoiding situations like in 2023 when Altman was ousted and reinstated over the course of a week due to a lack of communication. However, concerns have been raised about whether the
organisation would have enough
governance to hold itself accountable in the path to
generative AI.
What could becoming a for-profit mean for OpenAI in the future?
Tax
If and when OpenAI becomes a for-profit, it will not be considered a dissolution, it is merely a legal change of structure and federal law will not require the company to distribute its assets only to other tax-exempt organisation, the federal government
or a state or local government for a public purpose – as it would in the case of a dissolution. OpenAI will no longer tax exempt and will have to pay taxes on the new income it brings in. Sales strategies will also have to cover taxes and expenses for payroll,
marketing, and insurance.
Revenue
As a for-profit, OpenAI can no longer rely on investments and must ensure that enough revenue is generated to sustain operations. OpenAI, as a non-profit organisation, cannot be sold as it does not have an outright owner – the board of directors are the
decision makers. If and when OpenAI becomes a for-profit, money will be driven towards the organisation's operating expenses, such as salaries, rent, and marketing costs. Any profit can be given to shareholders as dividends, or be retained for growth or expansion.
The distribution of profits in a for-profit organisation is governed by bylaws and the laws of the state in which it is incorporated.
Governance
A for-profit cannot own a nonprofit but it can create a subsidiary nonprofit, which could be what occurs with OpenAI, provide funding to the non-profit or enter into a joint venture. In the case of the latter, when the for-profit has influence or control
of the nonprofit, applicable laws must be adhered to in order to protect against private benefits. Nonprofits are typically operated with a mission and public good at the centre, and a new hiring plan may also have to be put in place as some employees may
want to solely work for non-profits, and there may be a stark change in personnel at OpenAI in the near future.